Sistrom v Rangott & Ors [2004] ACTSC 4 (27 February 2004)

Last Updated: 27 February 2004

DAVID WILLIAM SISTROM v WILLIAM BALFOUR RANGOTT and

MICHAEL GREGORY JONES and REGINALD ROBERT EUSTACE and

DAVID SAXBY CAWTHORN and SCHON GREGORY CONDON and

DANIEL IVAN CVITANOVIC

[2004] ACTSC 4 (27 February 2004)

CATCHWORDS

PRACTICE AND PROCEDURE - pleading - amendment - application for leave to amend defence and counterclaim - prejudice to parties - no issue of principle.

Law Reform (Misrepresentation) Act 1977

Legislation Act 2001, s 84

Supreme Court Rules, O 32 r 1

Glover v Roche [2003] ACTSC 19

Atkinson v Fitzwalter [1987] 1 WLR 201

Paragon Finance plc v DB Thakerar & Co [1998] EWCA Civ 1249; [1999] 1 All ER 400

Ketteman v Hansel Properties Ltd [1987] 2 WLR 312

The State of Queensland v JL Holdings Pty Limited [1997] HCA 1; (1997) 189 CLR 146

McGee v Yeomans [1977] 1 NSWLR 273

Carlisle v Filaria Pty Ltd [2002] ACTSC 33

No SC 756 of 1993

Judge: Connolly J

Supreme Court of the ACT

Date: 27 February 2004

IN THE SUPREME COURT OF THE )

) No SC 756 of 1993

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: DAVID WILLIAM SISTROM

Plaintiff

AND: WILLIAM BALFOUR RANGOTT

Firstnamed defendant

AND: MICHAEL GREGORY JONES

Secondnamed defendant

AND: REGINALD ROBERT EUSTACE

Thirdnamed defendant

AND: DAVID SAXBY CAWTHORN

Fourthnamed defendant

AND: SCHON GREGORY CONDON

Fifthnamed defendant

AND: DANIEL IVAN CVITANOVIC

Sixthnamed defendant

ORDER

Judge: Connolly J

Date: 27 February 2004

Place: Canberra

THE COURT ORDERS THAT:

1. Leave be granted to the first and sixth and second and fifth defendants to amend their defences and counterclaims in the terms sought.

2. The first and sixth, and second and fifth defendants pay the plaintiff's costs thrown away by reason of the amendments.

1. This matter came before me by way of two notices of motion, filed respectively by the first and sixth, and second and fifth, defendants, to amend their defence and counterclaim in the terms of a proposed amended defence and counterclaim attached to the notices of motion. The substantive amendment sought in each case was to expressly plead fraud.

2. The substantive action was commenced by writ filed on 19 November 1993. It sought the payment of monies said to be due pursuant to a deed executed on 28 October 1992 between the plaintiff and the first to sixth defendants. The parties had all been accountants practicing in partnership in Canberra and other places. The effect of the deed was to terminate the plaintiff's involvement in the partnership and to provide a stream of income to him from the remaining partners. The deed also provided a range of indemnities.

3. The substantive action claimed that the defendants, in effect, had reneged on their obligation under the deed to continue to provide income. Defences and counterclaims were filed by the defendants in December 1993 and January 1994. Para 14 of the defence of the first and sixth defendants alleged that the plaintiff "secretly, and contrary to the requirements of" the Bankruptcy Act 1966 and Corporations Law and Regulations "maintained a private `trust account'" into which partnership monies had been transferred for his own benefit, and that at the time the deed was executed the plaintiff knew of this but did not disclose these matters to the defendants.

4. They sought recision of the deed or alternatively to set off the amounts allegedly improperly dealt with by the plaintiff against the monies said to be owing to the plaintiff.

5. Following the filing of the defences which clearly put the plaintiff's conduct towards his then partners in issue, there was no further action by the plaintiff, beyond filing a reply contesting the defences. The matter languished in the court list for many years until in late 2002 there was a notice of intention to proceed filed by the plaintiff in September to which the defendants joined issue by filing a notice of motion to strike the matter out for want of prosecution. This latter motion was withdrawn by consent and directions were given to get the matter ready for trial. It became apparent that the plaintiff was now gravely ill. His evidence-in-chief was prepared by way of affidavit, and the defendants served interrogatories on him.

6. In late 2003 the plaintiff filed a notice of motion seeking, in effect, to dispose of the matter without a trial on the merits. It sought the determination of a question of law to the effect that the defendants, as parties to a deed, which in its terms indemnified the plaintiff for any conduct as a partner, were estopped by the terms of the deed from raising that conduct as a defence to an action alleging a failure to comply with the deed. Mr Tatarka, for the plaintiff, indicated that he would rely on the line of authority in support of this proposition set out recently in this Court by Justice Crispin in Glover v Roche [2003] ACTSC 19 at [35]. The hearing of the notice of motion seeking this relief, which would in effect deny the defendants a trial on the merits was adjourned following an acknowledgement by the solicitor for the defendants that the defence as pleaded could indeed be precluded. Mr Gillespie-Jones, solicitor for the first and sixth defendants, on that occasion indicated that he would seek counsel's advice as to whether the defences should be amended to plead fraud. Mr Tatarka conceded, properly, that a pleading of fraud would not be defeated by the terms of the deed, and would need to go to trial.

7. The application before me is to allow the defendants to amend their defences and counterclaims to expressly plead fraud. Mr Mossop, whose submissions on behalf of the first and sixth defendants were expressly endorsed by Mr Whitelaw for the second and fifth defendants, submitted that the express pleading of fraud essentially relied on the facts already pleaded to establish the entitlement to set off any damages and to rescind the deed, in that the original pleading asserted that the plaintiff had "secretly" dealt with funds contrary to his legal obligations and his obligations to his partners. The effect of the amendments is to allege that the previously pleaded and identified conduct amounts to fraud.

8. The plaintiff vigorously opposed the amendment, on the basis that the allegation of fraud is made over ten years after the original defences were filed. He relied on a number of English authorities in support of the proposition that a late amendment to allege fraud should not be allowed (Atkinson v Fitzwalter [1987] 1 WLR 201); particularly where a claim would otherwise be statute barred (Paragon Finance plc v DB Thakerar & Co [1998] EWCA Civ 1249; [1999] 1 All ER 400; Ketteman v Hansel Properties Ltd [1987] 2 WLR 312).

9. While always respectful of English authorities, it seems to me that the law in England and Australia has to some extent diverged on the question of late amendments to pleadings in recent years, with the English authorities giving greater consideration to questions of case management and timeliness, while the High Court has made it quite clear in The State of Queensland v JL Holdings Pty Limited [1997] HCA 1; (1997) 189 CLR 146, where their Honours Dawson, Gaudron and McHugh JJ said at 154 that:

Case management is not an end in itself. It is an important and useful aid for ensuring the prompt and efficient disposal of litigation. But it ought always to be borne in mind, even in changing times, that the ultimate aim of a court is the attainment of justice and no principle of case management can be allowed to supplant that aim.

This case is now generally regarded as authority for the proposition that, in Australia, a party should be permitted to raise an arguable defence by a late amendment provided any prejudice to the other party can be compensated by costs.

10. The argument that the amendment could raise a limitations issue is countered by the defendants who say that the present form of the power in O 32 r 1 brings the ACT Rules into line with the provisions in other Australian jurisdictions that creates:

a general discretion to allow an amendment, notwithstanding that it raises a barred cause of action, whenever justice so requires. The exercise of the discretion is unfettered by any rules of practice. (Per Glass JA in McGee v Yeomans [1977] 1 NSWLR 273 at 280)

This principle is well recognised in this Court: see Carlisle v Filaria Pty Ltd [2002] ACTSC 33.

11. The defendants explain the delay by saying that the plaintiff had taken no steps to pursue the action for many years. An affidavit was filed by the first defendant that states that in October 1994, after the defendants had stopped paying the plaintiff, and after this action had been commenced and defended, the plaintiff had paid to the defendants the sum of $10,000 that had been held in the so-called secret account. Mr Mossop submitted that this was quite inconsistent with the plaintiff's claim that money was owing to him, and entitled the defendants to assume that the claim had been abandoned. Mr Rangott also gave evidence that the Australian Securities Commission investigated the plaintiff's conduct in relation to the so-called secret trust. He annexed to his affidavit a copy of a letter dated 10 October 1994 from the plaintiff's present solicitors covering the cheque for $10,000 stating that "we advise that an investigation by the ASC has disclosed that our client has failed to forward to you an amount of $10,000" in respect of a certain liquidation. These investigations lead to a prosecution being brought against Mr Sistrom. Mr Rangott also annexed to his affidavit a letter from the Commonwealth Director of Public Prosecutions dated 27 October 1995 thanking him for providing evidence in the matter, and advising that due to Mr Sistrom's ill-health and certain undertakings given by him to resign as an auditor and liquidator, the prosecution would not proceed. Mr Rangott said that as a result of these events he took the view that Mr Sistrom was not proceeding with his claim.

12. It seems to me that these are persuasive reasons why the jurisdiction to allow the defendants to amend their defence should be exercised in their favour. While it is true that the allegation of fraud is made ten years after the pleadings closed, I am satisfied that the plaintiff, after paying over some monies, and then being investigated and prosecuted in relation to his conduct while a partner, took no steps for many years to advance his claim.

13. When the claim was revived, it was done so on the basis that a trial on the merits was to occur. Mr Tatarka then advanced an argument that, on the state of the pleadings, could have resulted in a ruling that there would be no trial on the merits. Such a consequence would seem most unjust. I should add here that I am not persuaded that the loss of such an argument amounts to a prejudice to the plaintiff. The plaintiff on reactivating the case has been preparing for a trial on the merits, and that is what he will now have. Mr Tatarka argued that the amendment would preclude a judgment for the plaintiff on the basis that the deed precludes the defendants from raising the issues on the former state of the pleadings, but such an argument is not compelling as that course itself could facilitate an injustice. I should note that Mr Mossop advanced the argument (and has sought to amend the pleadings to expressly plead) that the Law Reform (Misrepresentation) Act 1977 (the operation of which is preserved by s 84 of the Legislation Act 2001) provides the Court with a range of remedies where recision of a contract or a deed is pleaded. The Act further provides that, if the terms of a deed are pleaded as a defence to a claim for a recision (which is in effect the argument advanced by Mr Tatarka in reliance of the line of authority referred to in Glover v Roche) the deed or contract can only be relied on if such reliance is "fair and reasonable in the circumstances". Reliance to prevent a trial on the merits in the circumstances of this case would not, it seems to me, be fair and reasonable to both parties.

14. I grant leave to the first and sixth and second and fifth defendants to amend their defences and counterclaims in the terms sought. Counsel acknowledged that such amendment must carry with it a costs provision, and accordingly I order that the first and sixth and second and fifth defendants pay the plaintiff's costs thrown away by reason of the amendments.

15. The effect of this is that the matter will now proceed to a hearing on the merits.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Connolly.

Associate:

Date: 27 February 2004

Counsel for the plaintiff: Mr S L Tatarka

Solicitor for the plaintiff: Norton White

Counsel for the 1^st and 6^th defendants: Mr DJC Mossop

Solicitor for the 1^st and 6^th defendants: Gillespie-Jones & Co

Counsel for the 2^nd and 5^th defendants: Mr C Whitelaw

Solicitor for the 2^nd and 5^th defendants: Capital Lawyers

Date of hearing: 17 February 2004

Date of judgment: 27 February 2004